Chinese IT outsourcers turn to Wall Street

Patrick Thibodeau |
Dec. 17, 2010

China-based companies responsible for one third of venture-backed IPOs

FRAMINGHAM, 16 DECEMBER 2010 - WASHINGTON -- While President Barack Obama met Wednesday with the CEOs of some of America's largest companies to discuss ideas for expanding the economy and creating jobs, a Chinese outsourcing firm was raising cash to help it expand in the U.S. market.

Beijing-based iSoftStone Holdings held its Initial Public Offering (IPO) on Wednesday. It sold 10.8 million shares at $13 a share, raising about $140.8 million. The company is now listed on the New York Stock Exchange.

iSoftStone has about 10,000 employees, mostly in China, but is seeking U.S. clients. To help accomplish that, in October, iSoftStone acquired Ascend, an IT consulting firm with Fortune 1000 clients in Waltham, Mass.

It believes Ascend will help it reach new markets, "as many global banking and financial institutions are increasingly seeking to work with China-based providers for IT and BPO services," Tianwen (TW) Liu, the company's founder, chairman and CEO, said at the time of the acquisition.

President Obama met for more than four hours, in private, with the CEOs from firms including Google , Intel , Cisco , GE, and others, to talk about innovation, education, global trade and exports.

These things are what China is seeking as well, and iSoftStone's route shows how China-based companies may improve their ability to compete in the U.S. for outsourcing work and high-skilled jobs.

And iSoftStone isn't the only outsourcing company from China to issue an IPO this year. hiSoft Technology International, of Dalian, in the country's northeast, was listed on the NASDAQ in June. It claimed to be the first Chinese IT and BPO outsourcing company to complete an IPO.

Camelot Information Systems, of Beijing, went public in July. The company says it is the largest domestic provider of SAP -based ERP (Enterprise Resource Planning) services in China.

A sign of China's new approach to the U.S. market is the number of IPOs it is responsible for this year. There were 68 venture-back IPOs this year, which was a rebound from 2008 and 2009 , which posted a two year total of just 18 IPOs, according to the National Venture Capital Association (NVCA). In 2007, there were 86 venture-backed IPOs.

But of the 68 IPOs this year, 23 were from China-based companies, said Mark Heesen, president of the NVCA. Subtract the Chinese firms from this year's IPO total, and Heesen called it an "anemic" year for venture-backed U.S. firms.

Heesen said China's IPO showing this year is a new phenomenon. "You are starting to see indigenous entrepreneurship in that country, and you are seeing Chinese who have been educated in the U.S. going back to China," he said.

Indeed, many of the top managers in iSoftStone have degrees from U.S. universities. Scott Gehsmann, a capital markets partner in PricewaterhouseCoopers Transaction Services practice, said getting listed on Wall Street will also help the Chinese companies in the U.S.